Banking compliance in Cyprus; From almost non-existent regulation to the other far extreme of over-regulation.

Cyprus has long been a hub for international banking and finance. However, in recent years, the banking industry in Cyprus has become increasingly burdened by what many see as excessive regulation and compliance requirements.

Cyprus has a reputation as a jurisdiction with high standards of banking regulation and anti-money laundering (AML) measures. This reputation has been built in part due to the island’s status as a popular destination for foreign investors, particularly those from Russia and other former Soviet countries.

However, since the financial crisis of 2008, there has been a global trend towards increased regulation of the banking industry. This has been driven by a desire to prevent a repeat of the excesses that led to the financial crisis and to crack down on money laundering and other financial crimes.

In Cyprus, this trend towards increased regulation has been particularly pronounced especially the last few years. The country has implemented a raft of new laws and regulations aimed at improving transparency, increasing accountability, and reducing the risk of financial crime.

While these measures have undoubtedly been well-intentioned, one can argue that they have gone too far. The sheer number of regulations and compliance requirements has become overwhelming, and that the costs of complying with these regulations are prohibitively high.

Even though all EU Member States need to comply with the EU Directives and Regulations as well as from the European Central Bank Directives and Policies, it is evident that certain (not all) Banking institutions in Cyprus has chosen a very strict interpretation and implementation of AML policies that has gone to the extreme end.

Such measures implemented by individual banks and banking officers have become too onerous that in majority of cases in adds a burden and prohibition in investments and business transactions.

If Cyprus wishes to retain its competitive advantage, the banking sector needs to evaluate the over-regulated regime that they follow and implement. We are daily witnesses in far stretched and unreasonable requirements implemented by certain banks even in the most basic transactions between Cyprus companies with funds already in the banking system of Cyprus.

The banking industry in Cyprus is undoubtedly one of the most heavily regulated in the world and one can argue that has become excessive. While there is no doubt that the fight against financial crime is an important one, it is also important to ensure that the required compliance is proportionate and that the burden of regulation is not so great as to stifle innovation and growth in the economy. As such, it is essential for regulators and the banks to carefully balance the need for strong anti-money laundering measures with the need to support a healthy and competitive market industry in Cyprus.